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Policy Coverage Sections The basic structure of the 1998 PAP remains constant in the '05 edition. This course, where applicable, will comment on significant differences between the two latest editions of the form. Part A - Liability Part A pays damages for bodily injury or property damage for which the insured becomes legally liable because of an accident. Besides payment for bodily injury and property damage, the policy also considers damages to include prejudgment interest and defense costs. This section also provides supplemental protection including the cost of bail bonds, loss of earnings, and other reasonable expenses. The maximum daily coverage for loss of earnings was substantially increased in the '05 edition and is now a more realistic coverage supplement. Part A excludes coverage for intentional acts, damage to property owned or controlled by the insured, bodily injury occurring in the course of work, and several other situations. Part B - Medical Payments Coverage Part B pays for reasonable expenses incurred for necessary medical expenses and/or funeral services due to bodily injury. Part B must involve an insured and be due to a covered accident. A different definition of insured applies to this part. Coverage is provided to an eligible insured as either a vehicle occupant or as a pedestrian. Coverage under Part B also extends to passengers in the covered auto. The exclusions are for losses involving vehicles with less than four wheels, vehicles used as a residence, a public or livery conveyance, and vehicles owned by or available for the regular use by any insured. Losses occurring during employment, while operating a vehicle without permission, involving an insured's business, and several other situations are also excluded. The Limit of Liability section explains that the limit shown in the policy declarations is not affected by the number of insured persons, claims made, vehicles and premiums shown in the declarations, or the number of vehicles involved in a given accident. It also states that duplicate payments will not be made under the same policy. The duplication wording is used in several areas of the Personal Auto Policy. Part C - Uninsured Motorists Coverage This section's insuring agreement promises to pay for bodily injury suffered by an insured which arises out of the negligent party's ownership, operation, or maintenance of an uninsured motor vehicle. The Personal Auto Policy states that coverage under the policy is unaffected by damages awarded in any suit filed without the insurer's written consent. This coverage part defines four situations under which a vehicle is considered to be uninsured. Further, no coverage is available for vehicles which are owned by or regularly available to an insured; which are owned/operated by a self-insurer; which are owned by a government unit or agency; are used as a residence or are designed mainly for off-road use and are off the road; or operate on rails or crawler treads. However, the policy doesn't consider a vehicle to be an "uninsured motor vehicle" if the vehicle is owned by or is regularly available to any insured, if it is operated by a self-insurer, if it is owned by any governmental unit or agency, or if it is operated on rails or crawler treads. The Personal Auto Policy also doesn't consider off road vehicles causing an accident while off the road or in use as a residence as an uninsured motor vehicle. The Part C exclusions deny coverage for bodily injury suffered by an insured while occupying or if struck by a vehicle he or she owns or is regularly available, as well as for bodily injury where any insured makes an unauthorized settlement. Coverage doesn't apply to operators using an insured vehicle without permission, nor does coverage exist in situations that are covered under either a workers compensation or a disability benefits law. Finally, there is no coverage for punitive or exemplary damages. The limit of liability section makes the same clarification found in earlier coverage parts regarding the applicability of the maximum amount of coverage available to an eligible loss. It also contains the non duplication wording, including a confirmation that this portion of the policy will not respond to losses when compensation is available under a workers compensation or disability benefits law. An arbitration section also exists under Part C, which outlines what happens when there is a disagreement among the parties over whether any payment is due or the amount of the payment. The mechanics of the process is explained in detail. If arbitration does not resolve the dispute, the section explains what options are available. Part D - Damage to Your Auto The insuring agreement states that coverage under this part takes care of "collision" and "other than collision" damage to any "covered auto" shown in the declarations. The policy defines collision as damage caused by your vehicle being upset (turned over, moved, etc.) or by the impact with another vehicle or object. Other than "collision" is defined as damage from falling or flying objects, fire, theft, explosion, earthquake, windstorm, vandalism, riots, birds/animals, broken glass, hail, water, or flood. A coverage extension called "Transportation Expenses" is available under this part; it is extended to a non-owned car or trailer, which takes the place of a covered auto that's inoperable because of theft, breakdown, or destruction. The replacement vehicle is covered as a temporary substitute auto. The policy pays for daily expenses up to $20, up to a total of $600, caused by a loss of use of a covered auto due to collision, other than collision, or the legal liability for loss of use expenses to the non-owned vehicle's owner. The expense coverage is available after 48 hours for a theft loss and after 24 hours for any other eligible cause of loss. In either case, coverage ends when the covered car is again available or a settlement has been paid. Exclusions No coverage exists for cars used to carry persons or goods for sale, for damage caused by wear and tear, freezing, breakdown, or road damage to tires. Other excluded causes of loss include radiation/nuclear accidents, war, civil upheavals, and loss to electronic entertainment equipment. Certain exceptions apply to such equipment installed in a certain way or which perform certain functions. Unfortunately, you're also out of luck if the loss is caused by confiscation from the government. Other situations which aren't covered by Part D - Damage to Your Auto are losses to owned camper bodies and trailers that aren't listed on the declarations, non-owned autos used without permission, awnings, radar/laser detectors, custom furnishings/equipment for pickups or vans, non-owned vehicles used in personal auto sales, repairs, storing, parking, or other excluded businesses, or vehicles used in races. Limit of liability The maximum to be paid for damage to your auto is the minimum amount it takes to properly indemnify the insured. A sub limit of $1,500 applies to non-owned trailers. The company has the option to either make a cash settlement, repair, or replace a covered vehicle. The PAP also offers a sub-limit of $1,000 for equipment that is only capable of reproducing sound, but which is installed in a place other than the area of the vehicle designed by the vehicle manufacturer. Part D includes provisions concerning bailees, other sources of payment, and appraisals. Part E - Duties After an Accident or Loss Now that the PAP has explained what it is responsible for, it is time to tell an insured about her or his duties. Briefly, an insured must tell the company details about any accident/loss and cooperate in the process, including any legal action. An insured must also be willing to undergo physical exams, take oaths, give permission to seek medical and other relevant records, give proof of loss, make police reports, protect and preserve property, and submit property for inspections and appraisals. '05 Change: In order to conform with various recent court decisions, the wording of this provision was slightly changed. The provision now states that if an insured endangers their PAP coverage, it is a failure to perform a duty, thus harming the insurance company's rights related to a given loss. Part F - General Provisions These contractual points are important to the Personal Auto Policy, but be aware that this part is frequently modified by ISO due to various state requirements. In fact, during this analysis, it is best to only consider the original provisions as a jumping off point to whatever state specific provisions apply. Further, it's also important to remember that modifications to these provisions are just as commonly replaced by individually filed company provisions, not just ISO state amendatory forms. Part F differs from the other parts since its provisions affect the entire policy. It's similar in that it can affect coverage just as directly as parts A through D. In fact, if the general provisions aren't complied with, the other parts may be moot. The provisions explain how the policy is affected by different events and the impact may be none (as with personal bankruptcy), a modification in terms, coverage or premiums (as with the changes section), or whether coverage applies (as with the territory, termination, and non renewal sections). Eligibility The Insurance Services Office has made no significant change in this area in updating from the '98 edition to the '05 edition of the Personal Auto Policy. Generally, the PAP is designed to cover private passenger autos, which include vans and pickup trucks; but the latter automobile types must be under 10,000 pounds gross vehicle weight. One interesting point: with the increased popularity of larger and heavier sports utility vehicles (SUVs), there may be the need to revisit this weight limitation. Qualifying vehicles must be owned either individually or jointly. Eligible joint ownership is restricted to two or more residents or relatives. The PAP must be endorsed in order to properly protect the interest of non-related residents who jointly own a vehicle. Rating Of course, the actual rating of personal auto insurance depends strictly upon an individual company. Historically, ISO plays a large role in providing information to assist company rate decisions. However, ISO had to revise its philosophy drastically in response to regulator and consumer perception that providing final rates was a form of collusion. ISO now restricts its efforts to providing important information in raw forms such as loss trends and base loss costs. Of course, ISO takes care to point out that the information is provided only as a service and insurers must be aware of and comply with their jurisdiction's rating regulations. The rating elements are common for all insurers: driver, the vehicle, and the area of operation. This fact allows for the increased automated rating of applications. The starting point is typically territorial base rates for bodily injury and property damage liability, medical payments (where applicable, may be replaced by personal injury protection coverage), uninsured/underinsured motorists, collision, and other than collision coverages. The liability base rates are modified by driver age/experience, liability limits, tickets and/or accident surcharges, etc. The physical damage coverages are modified by choice of deductible, vehicle type, value, daily and annual mileage, and vehicle use (i.e., business use.) These changes may be initiated by either company rules, customer preference, or need. A hybrid example is where the applicant requests uninsured motorists coverage at a state's minimum limit, but a company may have a filed rule that it can only be issued at the same limit as the bodily injury liability limit chosen. Underwriting Underwriting is basically an extension of the rating criteria, pushed to the extreme by whether the described risk/applicant fits within a company's personal auto pricing profile. In other words, the underwriting question, "Is this applicant acceptable?" is no different than the question "Can this applicant be rated in our program?" Yes, there are certainly exceptions such as rating a policy with special surcharges until it is legally canceled or non-renewed. However, with personal auto, underwriting generally equals pricing. In the distant and unenlightened past, a rare company might have used a set of underwriting rules that differed significantly from its rating plan. Today's era of fairness, justice, and vigilant regulation insures that a company's underwriting rules are a narrative of their approved rates. Individual companies establish their own rules of accepting automobile insurance applicants (subject to state specific mandates). However, most companies, except the incredibly avant-garde, review the same common topics. The elements that form an insurer's exposure to loss are the driver (including driver motor vehicle report), the type of car, the use of the car, and the automobile's garaging location. The introduction of the '98 edition of the PAP made it a witness to insurers', industry statistical organizations', association groups', and regulators' continuing debate over the use of credit history as an underwriting tool. The debate revolves around the regulators' contention that consumers' privacy rights are being violated and that such information is not a valid underwriting tool. The industry has contended that there is statistical support in using credit histories but has been unwilling to share detailed information with the NAIC. The issue of privacy is becoming a greater concern with the growth in popularity of the Internet and the investments made by the insurance industry and other parties that wish to exploit this medium as a way to sell and service all lines of insurance. There is also a high concern over the security of payment transactions done via the Internet, as well as a proliferation of insurance information made available to insureds on all lines of insurance including automobile. Finally, there is an increased interest among insurers who used to cater to the standard and preferred automobile driver market to now offer non-standard coverage. The latter development may have a big impact upon the affordability and profitability of private passenger automobile insurance. |
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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and CEfreedom and Kruise, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.
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